Some Disadvantages of Edward Jones

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Sep 21, 2011 5:26 pm

The Disadvantages of Edward Jones

In a former post, I listed the good aspects EJ, and they are many and significant. Here, in the interest of fairness, I'll look at some negatives. While these are drawbacks, I do not consider any to be a "dealbreaker." It's tough to list these, Jones gave me a start, and to be honest I kinda miss the place. But these things contributed to why I left:

1) The FA doesn't own the business, and never will. FAs are told "you can run your own business as long as it is profitable and legal..." But a more accurate statement would be, "you can run their (EJs) business as long as it is profitable and legal." When you retire or leave, they keep (or try to keep) the business.

In Ted Jones day, a founding tenet of the firm was that the Financial Advisor was the firm's customer. Management has changed that, and clearly stated, the client is the firm's customer and the FA is not the firm's customer (Does this make sense? In my naivety, I might have thought the FA was involved somehow.) This means the FA is just an employee, basically they are a Starbucks manager. (Not that being an employee is always a bad thing, employees can make lots of money, and there are other advantages - but you are not an owner of your business.)

2) It is very difficult to give independent investment advice. The FAs sell EJs limited product lines and a one size fits all investment philosophy. There are many products you cannot offer. Sophistication level is low. This can be a competitive disadvantage when you're up against high quality Independents, RIAs or wirehouses.

3) The FA doesn't have a personal brand. The Edward Jones name is everywhere, you're an employee in a green shirt. There is the same little green sign over everyone's door. The not so subtle message to clients is that they are a customer of the firm, and the FA is only a facilitator. Read the prewritten letters you are allowed to send out, or think about what your BOA says when they answer the phone. While you have the EJ brand working for you, the tradeoff is the FAs importance and indviduality is minimized. You can't have a blog or any other form of personal expression. You are a soldier and you wear a green uniform.

4) Management can put new offices right next to yours. EJ is a hyperlocal model, and your turf is not protected. I have a friend who has another Jones office across the street from him. He and the other FA wave to each other each morning on their way to work, and sometimes they look out their windows and wave to other. How is that for differientation?

5) The FA can be fired easily. Let your BOA complain, and innocent or guilty, you need to pack your bags. I think it has to do with legal risk because of the partnership structure. It seems there is an attitude and policy where the FA is expendable.

6) A weird, almost cult-like atmosphere - when you're at Jones, you're a member of the Jones family. You have to act like many statements which are made over an over by leadership are true, even when they are sometimes patently and obviously false. These include the famous "you own your business." Or my favorite, "the Regional Leader job's a labor of love" - when Regional Leaders are paid with partnership shares. And the perenial holding up of fast starting new FAs as being incredible performers when in most cases they are fast starters because they inherited big offices. Of course, at the new FA meetings, the recruits are new and afraid to say anything, so everyone nods in agreement.

The Regional meetings with the propaganda use to wear me down, and I won't even mention the awards dinner. For some reason, management seems to have created a culture of mendacity. I think it may have occured because the firm has strayed so far from Ted Jones original design and intentions... Rather than acknowledge this, management is in denial of their rejection of the firm's original values, and therefore resorts to propaganda.

7) You are working for the Empire. I don't know about you, but when I was a kid and watched Star Wars, I never saw myself as one of the guys in the grey suits with the little hats and the skinny neck helping to drive the Death Star.

8) I suspect the firm is under poor management right now, and given the structure of the company, I think it will stay that way for a long time. They are turning over many good up and coming FAs, only to hire new FAs who probably aren't as good of quality. Meanwhile, many of FAs they lose are hurt, but go on to set up shop as Independents, pull assets and become competitors. How smart is that? Do you think LPL writes Jones thank you letters? They should.

9) Growth model is in jeopardy. For some reason I never really understood, EJ was always obsessed with growth. In the current environment, I don't see that happening. The up and coming middle class retirees just got wiped out financially. I suspect pain is on the way as the growth model may no longer be viable. Witness the death of the commission based business they built themselves on because it was fast money. How will they adapt? So far, given the turnover, it doens't look good. Seems like rather than changing or adapting, they are blaming hard working, quality FAs instead of market conditions and business realities.

10) Blood on the tracks - the well known Edward Jones "one - two punch."  For new FAs, the one - two punch is first your savings, than run up your credit cards, than they fire you around year three. They keep, or at least try to keep your assets. This gives Jones the aspect of a pyramid or ponzi scheme, as the GPs and older FAs hired years ago do well and the new FAs pay the price. Also this is evident in the excessive payout to upper management. I understand business is business, but there is something a bit brutal about the turnover, and the using of new people to build assets in offices and then firing them (and of course keeping the assets. Incidentally, would their attitude be different if when they fired someone they lost all the assets as well?). I think this is where some of the dislike of Jones comes from on these forums. There is a hypocrisy as they profess a family atmosphere, but chew people up as they do try to get started in the business.

This may seem like a negative post, but in fairness to Jones, I like much about the company and you can see my take on the advantages of Edward Jones here.

Sep 22, 2011 1:44 am

Here, here, brother! Left EJ over 5 yrs ago, and I don't regret a thing. They are a cult, and I'm happy to have escaped.

Lew

Sep 22, 2011 5:22 am

Good to know about that. Thanks for leting us know Ashby

Sep 22, 2011 9:26 am

American..very well put.  The 'running your own business' line never sat well with me.  I remember sitting through KYC or Eval/Grad having that spoon fed to me every day in the general sessions and even then knew it wasn't quite true.  One day a few years later I made the decision to build MY book and run MY business...and haven't looked back. 

Sep 22, 2011 10:36 am

[quote=brookeirvins]

Good to know about that. Thanks for leting us know Ashby

[/quote]

Wow, you registered just to make that sarcastic comment. You should fit right in here.

Sep 22, 2011 10:45 am

Holy crap!  How long did it take to write that and add the hyperlinks?  Very entertaining read.

Sep 22, 2011 2:08 pm

@Hulk:

Does EJ let you access this site from the office?  I figured it would be on the 'list' of sites you wouldn't be able to get access to at work.  Why aren't you out doorknocking anyway? 

I only say that with the utmost love...as only an ex-Joneser could...

Sep 23, 2011 3:15 pm

Thanks, Hulk!

Sep 23, 2011 8:13 pm

Maybe it's me, but your list of Disadvantages seems twice as long as the advantages?!...

Sep 24, 2011 10:31 am

[quote=LoveInvesting]Maybe it's me, but your list of Disadvantages seems twice as long as the advantages?!...[/quote]

True, the list is longer. But quantity and quality are not the same thing. I mentioned at the beginning of the article I have good memories of my Edward Jones years, they were good to me in many ways, for the right person, in the right circumstances, they can be an excellent fit.

Sep 24, 2011 8:54 pm

Your first image of slaving away in a field, would make it hard for anyone to stay there.

But does anyone who truly owns their book really expect some poor newbie to buy their book of business for a million dollars or more when they retire? I mean, isn't that a risky proposition, to try and find someone who can afford your book, and someone who will live up to the plan and have the ability to make all the installment payments?

Sep 26, 2011 10:20 am

If your book weren't valuable, why would EJ management be so deadset upon owning it?

I'm not an expert on the topic of buying books, I have not bought one or sold one. However, from what I am told by a leading company which specializes in this area, there are many buyers for every seller  I believe the process  is more complicated than it sometimes is made to sound. Generally, it works as some money up front, then a partnership for several years, with an adjustable note involved.

Sep 27, 2011 10:38 pm

I guess that makes sense but that sounds very similar to the current edj 'sunset plan'...

Sep 28, 2011 6:39 pm

The Edward Jones Sunset Plan

I don't think the Sunset plan is at all similar to selling a book. The EJ Sunset is, in my opinion, a joke. I had a friend who got really taken advantage of by the program. The new guy came in, did nothing but wait till the three years was up so he wouldn't have to split the revenue. Notice the plan does cost Jones management one dime, they just split the retiring rep's revenue with someone else for three years. Thanks a lot! The leaving rep would be better off just working a couple more years.

By contrast, selling a book can be a significant financial benefit to the seller. My understanding is a book will sell for 1 - 2% of assets. The amount paid is set in advance. It can be adjusted if assets are lost to protect the buyer and to encourage motivation on the seller's part to help make the transition a success.

Being able to sell a book is a great advantage. My only point is if you are going be Independent, is it not enough to have a book, you must grow it over the years as well. Before you can sell a large book, you need to first develop the book.

The question is can you better develop and grow a book as a Jones guy, or as an an Independent? That is a question I am not yet able to answer.

Sep 28, 2011 10:32 am

[quote=American Flag]

The Edward Jones Sunset Plan

I don't think the Sunset plan is at all similar to selling a book. The EJ Sunset is, in my opinion, a joke. I had a friend who got really taken advantage of by the program. The new guy came in, did nothing but wait till the three years was up so he wouldn't have to split the revenue. Notice the plan does cost Jones management one dime, they just split the retiring rep's revenue with someone else for three years. Thanks a lot! The leaving rep would be better off just working a couple more years.

That's not Jones' fault.  It's the leaving advisor.  He got to choose his replacement.  Completely his decision, so if he chose a lazy d-bag, you can't put that on Jones.

By contrast, selling a book can be a significant financial benefit to the seller. My understanding is a book will sell for 1 - 2% of assets. The amount paid is set in advance. It can be adjusted if assets are lost to protect the buyer and to encourage motivation on the seller's part to help make the transition a success.

The Jones Sunset is in that neighborhood, but you have Jones guaranteeing the deal as opposed to one guy.

The question is can you better develop and grow a book as a Jones guy, or as an an Independent? That is a question I am not yet able to answer.

From scratch, the answer is without a doubt EDJ over indy.  From a base of X million, I don't know that there's a one size fits all answer.

[/quote]

Sep 28, 2011 10:51 am

[quote=Incredible Hulk]

[quote=American Flag]

The Edward Jones Sunset Plan

The Jones Sunset is in that neighborhood, but you have Jones guaranteeing the deal as opposed to one guy.

 quote=Incredible Hulk]

I'm not following, maybe they changed the plan, what is Jones guaranteeing?

Sep 28, 2011 4:17 pm

The % of gross income generated.  As opposed to depending on 1 guy to stay in business (whether legal, financial or personal reasons might drive him out) with a note payable over 3 years.

Sep 28, 2011 5:21 pm

Hulk...just a simple question:  If something were to happen to you,  death, disability to the point you could not work (other than disability payments you would receive from insurance), etc....what would happen to your book at EJ?  Would they compensate your spouse/estate, or you (in the case of disability)? 

Sep 28, 2011 6:41 pm

Hulk, sounds like they changed the game since I was there.  Then the retiring vet gave a percent of the revenue to the new guy, I think it was like 30% in year 1, 50% in year 2, and 70% in year 3. It had to be the stupidest idea they ever came up with.  How is a vet gonna benefit by giving up part of their revenue? Notice the GPs put in nothing.

Sounds like they came up with a new program. You would have to explain how it works.

Sep 28, 2011 6:48 pm

My solution is four more years of Obama.